Last year was crazy and 2020 might be good too! - January 03, 2020

Last year was crazy and 2020 might be good too!

It is rather unlikely to repeat last year’s bull run, but 2020 might be good year as well. A US presidential election year is usually a strong one. What’s more, long standing tensions (like the trade war and the Brexit) may come to an end. Let’s see what we expect for 2020!

US stocks had the time of their life last year: they went up by 28% in 2019. Why is that important in 2020? Because it may foretell important things about this year’s performance.

Diversification and careful optimism for 2020

If we had to give a very short advice to investors for 2020 it would be to “be carefully optimistic and have a diversified portfolio”. Why? Because we expect S&P 500 to go even higher in 2020, but we don’t see a bull run like in 2019. There might even be smaller corrections along the way, but just like many other experts, we expect prices to go up.

Historical data backs us up as it can be seen from the chart above. Whenever the index performed as well as the year before, the bull market went on for the next year too. (There were only some exceptions to this rule in the 1930s and 1940s.)

Don’t only think about stocks

The diversification of one’s portfolio shouldn’t only mean stocks. Precious metals, especially gold, had a good year in 2019: the prices went up by around 16% in 12 months. This is important because it shows that there were (and are) some uncertainties on the markets and that people still turn to this safe haven.

This will be true for 2020 as well, as demand for gold will not fall according to our experts. What’s more, the precious metal may very well help during those more volatile periods of the year.  (See: Diversified investments? Gold should have a role in them!)

Presidential election is coming

Another thing to look out for in 2020 is the upcoming US presidential election. This brings some uncertainties on its own, too. The campaign might be savage, especially with the ongoing impeachment  against Donald Trump. The removal of the President might be beyond hope for the Democrats, but as a topic this will be an important one on both sides.

In 2016 the market (and most analysts) expected Hillary Clinton to win the elections, so now everyone is more cautious with their predictions. Especially since serving two-terms is quite common in the US, so Trump may very well win again. We’ll have to see what happens, but from our point of view what’s really important is that in election years markets usually perform well, so that’s an argument for being optimistic.

Some things may clear up

There are some things that may clear up in 2020. Brexit for example is (probably) happening at last. Especially after Boris Johnson and the Conservatives won the snap elections in December. Now the main question is how it will happen. They will need to sign new trade deals with (almost) all the countries in the world; the EU and the US will be especially important. That is a serious task to tackle. (Scotland’s independence will also come up in 2020, which will have its own repercussions.)

The trade war between China and the USA may be resolved after years of harmful fighting and tariffs. The second phase of the trade deal talks will start soon, and hopefully they will bring peace and calm to the market. Especially since it costed $700 billion for global economy according to the IMF. Its end may give a nice boost to global expansion, helping markets to higher gains.

All in all, 2020 might be a strong year on the markets but discipline and longer-term thinking might be even more important than in 2019.

Disclaimer: This analysis is for general information and is not a recommendation to sell or buy any instrument. Since every investment holds some risk, our main business policy is based on diversification to minimize threats and maximize profits. Innovative Securities’ Profit Max has a diversified portfolio, which contains liquid instruments. This way, our clients can maintain liquidity, while achieving their personal investment goals on the long term.